Demand N Supply Elasticity

Evanglin Makarawung
100613003
IIC
MICROECONOMICS
1. Suppose the demand and supply curves for eggs in the United States are given by the
following equations:
Qd = 100 – 20P
Qs = 10 + 40P
Where Qd = millions of dozen of eggs Americans would like to buy each year, Qs = millions
of dozens of eggs U.S. farms would like to sell each year; P = price per dozen of eggs.
a. Fill in the following table:
Price (per dozen) Quantity Demanded (Qd) Quantity Supplied (Qs)
$0.50 90 30
$1.00 80 50
$1.50 70 70
$2.00 60 90
$2.50 50 110
Answer:
P = 0.50
Qd = 100 – 20(0.50) = 100 – 10 = 90
Qs = 10 + 40(0.50) = 10 + 20 = 30
P = 1.00 Qd = 100 – 20(1.00) = 100 – 20 = 80
Qs = 10 + 40(1.00) = 10 + 40 = 50
P = 1.50 Qd = 100 – 20(1.50) = 100 – 30 = 70
Qs = 10 + 40(1.50) = 10 + 60 = 70
P = 2.00 Qd = 100 – 20(2.00) = 100 – 40 = 60
Qs = 10 + 40(2.00) = 10 + 80 = 90
P = 2.50 Qd = 100 – 20(2.50) = 100 – 50 = 50
Qs = 10 + 40(2.50) = 10 + 100 = 110
b. Use the information in the table to find the equilibrium price and quantity.
Answer:
The equilibrium price is $1.50 and the equilibrium quantity is 70 millions of dozen of
eggs.
c. Graph the demand and supply curves and identify the equilibrium price and quantity.
Answer:
P
2.50
Price per dozen of eggs
2.00
1.50 equilibrium
1.00
0.50
Q
30 40 10 20
50 60 70 80 90 100 110
Million of dozen of eggs
: Quantity demanded
: Quantity Supplied
2. Suppose the market demand for pizza is given by
Qd = 300 – 20P and the market supply for pizza is given by
Qs = 20P – 100, where P = price (per pizza)
a. Graph the supply and demand schedules for pizza using $5 through $15 as the value
Answer:
P
p
e
P
z
z
c
r
r
i
i
16
12
10 equilibrium
Q
20 40 60 80 100 120 140 160 180 200
Quantity of pizza
: Quantity demanded
: Quantity supplied
b. In equilibrium, how many pizzas would be sold and at what price?
Answer:
Pizza would be sold: 100
Price: $10
c. What would happen if suppliers set the price of pizza at $15? Explain the market
adjustment process.
Answer:
If suppliers set the price of pizza at $15, then the pizza will not sell because with the
price of $15 there would be no demand even if its supply is very high.
3. Fill in the missing amounts in the following table:

% Change in price % Change In Elasticity
quantity
Demand for Ben & n +10% -12% -1.2
Jerry’s Ice Cream
Demand for beer at -20% 10% -0.5
San Francisco 49ers
football game
Demand for 15% -15% -1.0
Broadway theater
tickets in New York
Supply of chickens +10% +12 +1.2
Supply of beef cattle -15% -10% +0.5
Answer:
a. Demand for Ben & n Jerry’s Ice Cream:
+12%
= −1.2
−10%
b. Demand for beer at San Francisco 49ers football game:
𝑏
= −0.5
−20%
𝑏 = (−0.5)(−20%) = 10%
c. Demand for Broadway theater tickets in New York:
−15%
= −1.0
𝑐
−15% = −1.0𝑐
−15%
=𝑐
−1.0
15% = 𝑐
d. Supply of chickens:
𝑑
= 1.2
10%
𝑑 = (1.2)(10%) = 12
e. Supply of beef cattle:
−10%
= 0.5
−15%
4. Using the midpoint formula, calculate elasticity for each of the following changes in demand
by a household.
P1 P2 Q1 Q2
Demand for
a. long distance telephone $0.25 per min $0.15 per min 300 min per 400 min. per
services month month
b. Orange juice 1.49 per qt 1.89 per qt 14 qt per 12 qt per
month month
c. Big Masc 2.89 1.00 3 per week 6 per week
d. Cooked shrimp $9 per lb $12 per lb 2 lb per month 1.5 lb per
month
Answer:
a. %change in price demanded:
0.15 − 0.25 −0.1
0.25+0.15
× 100% = × 100% = −50%
2
0.2
%change in quantity demanded:
400 − 300 100
300+400
× 100% = × 100% = 28.6%
2
350
Elasticity of demand
28.6%
= 0.57
−50%
b. %change in price demanded:
1.89 − 1.49 0.4
1.49+1.89
× 100% = × 100% = 33.6%
2
1.19
12 − 14 −2
14+12
× 100% = × 100% = −15.38%
2
13
Elasticity of demand:
−15.38%
= 0.46
33.6%
c. %change in price demanded:
1.00 − 2.89 −1.89
2.89+1.00
× 100% = × 100% = −97.42%
2
1.94
6−3 3
6+3
× 100% = × 100% = 66.67%
2
4.5
66.67%
= 0.68
−97.42%
d. %change in price demanded:
12 − 9 3
9+12
× 100% = × 100% = 28.57%
2
10.5
1.5 − 2 −0.5
2+1.5
× 100% = × 100% = 28.57%
2
1.75
28.57%
=1
28.57%

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Evanglin Makarawung

3. Fill in the missing amounts in the following table:

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